Gulf of Mexico forecast 2016, part 1

By some measures, the Gulf of Mexico is in decline. Over the last decade, the percentage of offshore oil production in the region has waned from 27% of US output to 16%. The percentage share of offshore gas production has also dropped, from 26% in 1997 to 5% in 2014.

But onshore the region is experiencing a renaissance, with unconventional shale oil and gas pushing up production to unprecedented heights, invigorating both the refining and petrochemical sectors with billions of dollars of new investment. And that means new pipelines and expansion of existing networks. “Our analysis of the fundamentals of the US Gulf Coast has led to a strategic shift in thinking about that region, which leads us to believe it can be an area of new growth for us,” said Guy Jarvis, President of Liquids Pipelines for Enbridge. “The region has always been a massive energy corridor, but its prominence in North America and globally is growing.”

Although the offshore Gulf’s percentage share of oil production has decreased in recent years, output has recovered from the post Macondo drilling moratorium. According to the Energy Information Administration (EIA), offshore output reached 1.52 million bpd in 2015 and is expected to top 1.6 million bpd in 2016.

The growth is coming from a number of major players, including Freeport-McMoRan Oil & Gas. The company is bringing three Horn Mountain tiebacks (Quebec/Victory, Kilo/Oscar, and Horn Mountain Updip), onstream, with the potential to produce more than 27 000 boe/d. The company has also drilled a second development well in the King oilfield and two other nearby prospects, and expects to add another 20 000 boe/d.

Further out on the time line, Royal Dutch Shell has made a final investment decision on its Appomattox deepwater project, giving the green light to its largest floating platform in the Gulf. The Appomattox and Vicksburg fields, situated 120 km offshore Louisiana in 7200 ft of water, hold 800 million boe of resources. Shell expects the project to be producing up to 175 000 boe by the latter part of the decade.

New offshore pipes

The new developments require heaps of offshore pipe. Williams recently began operations on the extended Discovery natural gas pipeline system. The 20 in., 209 mile Keathley Canyon connector lies in 7200 ft of water approximately 300 miles southwest of New Orleans. The system is capable of gathering more than 400 million ft3/d from the Lucius, Heidelberg and Hadrian fields and delivering it ashore to the Larose processing plant.Recently, Shell awarded Technip the pipeline tie-in contract for the Stones field, which sits in the Walker Ridge area under 9600 ft of water. The Paris-based company will connect two production wells to the FPSO vessel anchored above the field.

Shell will also build the Mattox pipeline to service the Appomattox project. A 24 in. dia. corridor pipeline will transport crude oil from the Appomattox host to an existing offshore structure in the South Pass area and then connect onshore through an existing pipeline.

Onshore

Several North American unconventional exploration developments are having a profound impact on the Gulf Coast refining and petrochemical industry, and the subsequent pipeline networks associated with them. For decades, the Gulf Coast region has been a landing point for imports of crude from the Middle East, Latin America and Africa. Many of the imports were upgraded in Texas and Louisiana, but much was also shipped into the Midwest interior. As production from the oilsands in Canada and the Bakken formation in North Dakota has increased, they have gradually displaced those imports to the Midwest, and now significant attention is being focused further south, to the Gulf Coast.

Although the Keystone XL pipeline (which was designed to deliver heavy crude from Alberta to Texas directly) was recently rejected by the Obama Administration, other indirect routes are now reaching completion. Enbridge and EPP’s Seaway Twin pipeline entered service in late 2014. The 450 mile pipeline carries up to 450 000 bpd of crude from Cushing, Oklahoma, to Freeport Texas. The twinning more than doubles the capacity of the Seaway system to 850 000 bpd. The line is replacing faltering Venezuelan and Mexican deliveries with Canadian heavy crude.

More displacement is expected to follow. Discussion is underway to reverse the flow of Marathon’s twin Capline pipeline system, which runs from St. James, Louisiana, to Patoka, Illinois. The system can carry 1.2 million bpd; owners are studying whether at least one line can be converted to bring crude from the Midwest to the Gulf region.

Kinder Morgan is seeking shippers on its proposed Utica Marcellus Texas Pipeline (UMPT), which would ship natural gas liquids (NGLs) and condensate produced in the Utica and Marcellus shales to the Texas Gulf Coast. The project would require conversion of 964 miles of natural gas lines in Tennessee, and construction of 120 miles of line from Louisiana to Texas. The pipeline could be in service by late 2018, and carry up to 430 000 bpd.

In the Gulf Coast region itself, the development of the Eagle Ford shale and the Permian Basin shales has led to a huge increase of gas, crude, NGLs and condensate that have required significant increases in dedicated pipeline capacity.

Kinder Morgan plans to expand its KMCC pipeline from 300 000 - 360 000 bpd. The line carries crude and condensate from Eagle Ford to the Houston Ship Channel.

Plains All American Pipeline and EPP are completing a new condensate gathering system and increasing capacity to existing pipelines. A total of 125 miles of new pipe will deliver product to the Three Rivers terminal. The Eagle Ford Pipeline that transports fluids from Three Rivers to Corpus Christi will be looped, effectively increasing capacity to 600 000 bpd.

Cheniere Corpus Christi Pipeline is building a 23 mile, 48 in. dia. pipeline to connect its Corpus Christi Liquefaction plant to a point near Sinton, Texas. With a capacity of 2.25 billion ft3/d, the pipeline will move both domestic natural gas to the plant for export and re-gasified imports from the LNG terminal to interconnections with the existing pipeline systems. As part of the import/export project, Cheniere plans to construct three, 5 million tpy liquefaction trains. The liquefaction portion is expected to enter operations by early 2019.

Several new pipelines will transport gas south to Mexico. The Federal Electricity Commission is installing a total of five lines to service gas turbines throughout the country. Two lines will originate in Waha, Texas, and run to Chihuahua State. A third will run from Ojinaga, Chihuahua, to El Encino, Chihuahua, and a fourth from El Encino to Durango. A fifth line will extend from Arizona to San Luis Rio Colorado in Sonora State. In all, the five pipelines will have a capacity of 5.8 billion ft3/d.